Currency woes weigh on Vodacom

Vodacom has reported lower headline earnings per share (HEPS) at the halfway stage largely due to currency depreciation in Ethiopia and one-off costs in its international business. 

HEPS for the six months to end-December declined 19.4% to 353c. The currency depreciation in Ethiopia accounted for 53c per share, Vodacom said.

CEO Shameel Joosub said the period was characterised by significant currency headwinds on the one hand and a resilient operational response on the other to ensure that that group continues to deliver on its medium-term financial targets.

“While our bottom line was impacted by various one-offs, I am confident that we are poised for a stronger second half performance,” he said.

Revenue was 1% higher on a reported basis at R73.5bn, but was up 10.4% on a normalised basis, which adjusts for foreign currency fluctuation on a constant currency basis and excludes the effect of merger, acquisition and disposal activities.

Group service revenue growth was 9.9% on a normalised basis, at the higher end of the group’s medium-term target. Financial services revenue increased 7.8%, and by 17.6% on a normalised basis, to R6.7bn, contributing 11.4% to group service revenue.

Group earnings before interest, tax, depreciation and amortisation (ebitda) declined 2.7% to R26.6bn, but grew 8.5% on a normalised basis.

An interim dividend of 285c per share was declared compared with 305c a year ago.

Joosub said he was pleased with the manner in which the Egyptian business navigated its way through a material currency devaluation to produce R13bn in service revenue. Customer numbers in Egypt were up 5.9% to 48.3-million.

In SA, Vodacom serves 49.2-million customers, an increase of 4.2%. Driven primarily by beyond mobile services, the consumer segment and prepaid mobile data, service revenue in SA grew 1.3% to R31.1bn despite pressure in the wholesale segment. Beyond mobile services increased 8.1%, contributing R5.5bn or 17.7% of service revenue.

By containing costs below inflation and delivering revenue growth, SA grew ebitda by 2.3% while operating profit increased 2.4% due to a moderated investment into energy resilience given the recent stability of the national electricity grid.

Elsewhere, the group reported service revenue growth in Tanzania of 19.1%, and 9% growth in Democratic Republic of Congo (DRC), were the drivers of the commercial performance in the international business.

On a normalised basis, the international business grew service revenue by 6.2%, with the customer base up 4.5% to 56.1-million.

“While this helped offset one-off costs in DRC and the impact of repricing in Mozambique, ebitda from this portfolio declined 20%. This was disappointing given the commercial momentum in the segment, however, we do expect an improved ebitda performance from this segment in the second half,” Joosub said.

Safaricom delivered an “excellent result” in Kenya, and its Ethiopian greenfield operation faced “a material currency impact” in the period, he said.

In Kenya, service revenue growth of 12.9% was supported by strong adoption of 4G services and sustained M-Pesa growth.

M-Pesa’s 16.6% growth in revenue was supported by business payments.

The currency reforms in Ethiopia affected associate Safaricom’s contribution of R1.3bn to operating profit. was impacted by the currency reforms in Ethiopia. In contrast, Safaricom’s underlying net profit result demonstrated strong growth, he said.

“It is pleasing that our markets continue to deliver strong operational momentum, despite the material currency devaluations in Egypt and Ethiopia.

“While we remain mindful of an evolving macroeconomic environment across our footprint, including foreign exchange rate risk, I believe that the group is well positioned to capitalise on opportunities once the global economy shifts from its current cautious optimism to sustainable growth,” Joosub said.

mackenziej@arena.africa